British Rail plunges 164m pounds into the red: Preparation for privatisation causing problems, union leader says

BRITISH RAIL plunged deeply into the red during its last financial year because of falling passenger numbers and massive borrowings, losing pounds 139m more than in 1991-92.

With the privatisation process due to start in April 1994, the figures are unlikely to impress the potential private operators the Government hopes to attract to some services by next autumn.

Yesterday, Sir Bob Reid, the British Rail chairman, announced a loss of pounds 163.9m for 1992-93. For the year 1991-92, BR lost pounds 144.7m, but a change in accountancy policy, involving writing off assets over 30 years instead of one, to bring BR into line with other companies, meant that this figure was revised to pounds 24.6m.

BR has become a heavily indebted railway. Only three years ago, its long- term borrowings were just pounds 170m, but last year they reached pounds 1,825m, a tenfold increase in just two years.

BR used to be able to fund much of its investment from revenue, but falling income and the high level of spending on preparing for the Channel tunnel has made this impossible. Interest payments last year were pounds 144m, double the previous year.

Underlying the loss was a 2 per cent fall in passengers and a 4 per cent fall in freight and parcels, caused by the recession. The recession has led to a shift in passengers from first to second class, also hitting revenue.

Although InterCity, BR's flagship which receives no subsidy, made an operating profit of pounds 65.1m, this is a drop of pounds 25m from last year if the same accountancy practice is be used. Sir Bob warned that BR faced an investment crisis. Although investment last year was high, at nearly pounds 1bn on the existing railway, this year tight government restrictions mean it would fall to pounds 616m, well below the pounds 850m Sir Bob says is necessary.

Sir Bob said: 'The success of privatisation will depend as much on investment as on restructuring.' On 1 April, BR will be split into 65 companies and units, losing control of the track which will go to Railtrack, and the rolling stock which will go to three leasing companies.

Jimmy Knapp, the leader of RMT, the rail union, said: 'The message of this report is that the preparation for privatisation is already causing massive problems.'

The Government is to reduce the money available for BR to run subsidised services by pounds 300m this year, compared with 1992-93. BR will save pounds 120m from having made 8,000 staff redundant last year - and a further pounds 96m in redundancy costs, as a one- off - but John Welsby, BR's chief executive, was unable to explain where the rest of the savings would be made.

BR has cut very few services during the recession and the Government would find it politically impossible to close lines or raise fares sharply in the run-up to privatisation.

BR sources say the Government will have to rescue BR to save privatisation from disaster. The privatisation process has officially cost pounds 10m, thought to be a gross underestimate, and is taking up 25 per cent of managers' time. Costs are mounting as a result of reorganising BR and creating up to 14,000 contracts between the various units and companies.

----------------------------------------------------------------- BR FACT FILE ----------------------------------------------------------------- BR carried an average of 2.1 million passengers every weekday on 14,000 trains. No passenger was killed in a train crash in 1992-93, the first time this has happened since 1989-90. Pounds 1,154m was received in grant, or over pounds 3m per day, to run subsidised services. BR carried 122.4 million tons of freight, compared with 135.8 million in the previous year. BR now employs 122,780 people, compared with 129,990 in 1991-92. Turnover was pounds 3,116m, compared with pounds 3,151m in 1991-92. -----------------------------------------------------------------

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